After tax salvage value After tax cash flows 2400 PV of after tax cash flows

After tax salvage value after tax cash flows 2400 pv

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After-tax salvage value After-tax cash flows ($240.0) PV of after-tax cash flows ($240.0) Total PV = ($359.259) PV Difference in cash flows between alternatives = $43.182 2. Estimated Payback Period from Purchasing RoboDril 1010K rather than O Net After-t Year AccuDril 0 $0.0 1 ### 2 ### 3 ($79.4) Thus, the payback period for investing in the new machine is 2 we estimate the payback period as 2.33 years, as follows Payback period = 4. Among other factors that the firm should consider before making a final de • Changes in technology for equipment • Changes in market, especially demand for the product and compe • Reliability of the new machine and the expected effects of overha • Reliability of AccuDril and accuracy of the estimates given • Competitive strategy of the firm • Differences in product qualities manufactured by the two machine
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ons se of a new drilling machine, model RoboDril stantially increase productivity over AccuDril ars ago for $120,000 and is being depreci- $20,000. The engineering department erhaul at the end of its expected useful life. will be depreciated using straight-line s operating efficiency approximately 20%. No nd training will cost another $30,000. The oboDril will be depreciated using the straight- oboDril obsolete to the firm in five years. Other pertinent data follow:
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12% 40% es. having AccuDril X10 overhauled fore making the final decision? After-tax Cash Flows (000s) 1 2 3 4 5 ($48.0) ($48.0) ($38.4) ($38.4) ($38.4) ($100.0) $4.0 $4.0 $16.0 $16.0 $16.0 ($57.0) ($57.0) ($57.0) ($57.0) ($57.0) ($101.0) ($201.0) ($79.4) ($79.4) ($79.4) 0.893 0.797 0.712 0.636 0.567 ($90.19) ($160.20) ($56.53) ($50.50) ($45.02) ($24.0) ($24.0) ($24.0) ($24.0) ($24.0) $19.2 $19.2 $19.2 $19.2 $19.2 ($33.0) ($33.0) ($33.0) ($33.0) ($33.0) PV factors from Appendix C, Table 1.)
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$30.0 ($37.8) ($37.8) ($37.8) ($37.8) ($7.8) ($33.8) ($30.1) ($26.9) ($24.0) ($4.4) in favor of RoboDril 1010K Overhauling Existing Machine tax CFs Diff. in Cumulative RoboDril Cash Flows Difference ($240.0) ($240.0) ($240.0) ($37.8) $63.2 ($176.8) ($37.8) $163.2 ($13.6) ($37.8) $41.6 2+ years. Using a linear interpolation method, 2.33years ecision are: etitors aul es
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Problem 12-54: Sensitivity Analysis; Spreadsheets Background Problem Information Original purchase price $120,000 Estimated salvage value $20,000 Original life (years) 10 Elapsed time (usage, in years) 8 Est. overhaul cost, three years from now $100,000 Est. salvage value, new machine $0 Est. life of overhauled machine (years) 3 Effic. Gain, overhauled machine 20% Cost of new machine $250,000 Training costs, new machine $30,000 Est. salvage value, overhauled machine $0 Est. life, new machine (in years) 5 Units of output (per year) 10,000 10,000 Machine-hours 8,000 4,000 Var. cash operating cost per machine hour $10.00 $10.00 Selling price per unit $100 $100 Variable manufacturing cost $40 $40 (not including machine-hours) Other annual cash expenses $95,000 $55,000 (tooling and supervising) Disposable value—today $25,000 Trade-in allowance for new machine $40,000 Disposable value—in five years 0 $50,000 Devine Instrument Company’s wtd-average cost of capital (WACC) Tax rate Requirements Use the information in Prob. 12-53 to answer the questions that follow. AccuDril X10 RoboDril 1010K
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1. What is the maximum machine operating cost of the overhauled AccuDril decision?
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